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Tuesday, February 10, 2009

'Flipping' Property For A Quick Profit

Source : The Sunday Times, Feb 8, 2009

ERA COURT CASE

Agents speak out on how common practice is, and conditions for an ethical transaction

A couple flipped when they found out that the flat they sold through a property agent had been 'flipped' by his boss' wife.

She quickly resold it - for a big profit.

The couple went to court, and last week a judge decided the agent was unethical, and ordered the firm he worked for to pay the sum of the profit to the couple.

What exactly is 'flipping of property' and - given that there are claims it is a common practice - when is it unethical?

Last week's case sheds some light.

'Flipping' takes place when someone - usually a speculator or even an agent - buys a property and resells it quickly to make a quick buck.

The court heard that Mr Yuen Chow Hin, an IT company vice-president, and his wife, Madam Wong Wai Fan, a housewife, had sold their two-bedroom downtown flat for $688,000.

Their ERA Realty Network agent had told them this was the best price they could get. But they later checked and were shocked to learn that the buyer of their Riverside Piazza unit had immediately re-sold the flat for $945,000.

There was another shock: The first buyer was the wife of their property agent's boss.

The judge, deciding that the agent and his boss had not acted in the Yuens' interest, ordered ERA to return them $257,000.

The Sunday Times spoke to six real estate agencies. Most said the verdict was fair.

Said Mr Steven Tan, executive director of property firm OrangeTee: 'I think the verdict is correct. The moment we decide to let agents represent us, we have to be accountable for their mistakes.'

Agencies agreed that cases similar to the Yuens' are uncommon. But they were divided over how common flipping is among agents.

'I don't think it's widespread... As agents, we are trained and we have a code of conduct and ethics,' said Mr Ho Tian Lam, DTZ's chief executive officer.

Some agencies disallow flipping. At C&H Group, when agents join the company, they must sign an agreement with a clause that they must not act as an agent to buy a property under their own name or a nominee's name, like a wife or a friend.

Other industry players say flipping by property agents is not uncommon but is usually done in an 'ethical' manner.

Mr Mohamed Ismail, chief executive of PropNex, said flipping usually happens in a buoyant market.

'It is not wrong for an agent in a good, speculative market to take a risk by buying property from a client and then selling it,' he said.

But two conditions have to be fulfilled for it to be an ethical transaction, he said.

First, the agent must be transparent to the seller about who the buyer is.

Secondly, if the agent buys the flat, he must buy it at a reasonable price from the seller and he cannot make a 'secret profit' by underpaying the seller.

Said a property agent who wanted to be known only as Ms J. Tan: 'We are human and we buy property too. If we are interested in buying it ourselves, we have to make it known and not keep the owner in the dark.'

Ms Ivy Lee, chief executive officer of Ivy Lee Realty, said that if the agent pays the clients the price of their choice, it is acceptable.

But she added this proviso: 'The agent should make the seller aware of the prices involved relative to the value of the property.'

How did the Yuens smell a rat?

The discrepancy was spotted when the Central Provident Fund (CPF) Board asked why they sold the flat well below the valuation obtained by the new buyer.

Said a CPF Board spokesman of its procedure: 'When a member sells his property, he is required to refund the full CPF principal withdrawn and accrued interest.

'If he is unable to do so, because he has to pay the bank first or the sale price is not sufficient to cover the required refund, CPF Board will ask for a valuation report to check that the property is sold at market value.'

There are also agencies which, on their own initiative, take steps to protect clients in the event of a breach by their agents.

Mr Ismail said PropNex ensures that all staff are covered with professional indemnity insurance so clients can make a claim if the agent is professionally negligent.

HSR Property Group is also going to introduce professional indemnity insurance covering each agent for $400,000.

A spokesman said it plans to launch it in phases soon.

Also, there are agents who eschew any form of flipping, which they see as unethical.

Said Mr Jeffrey Sim, a property agent with DTZ: 'If there's an opportunity to flip properties, sellers would jump on it. It's only human to do that, but I wouldn't do it because I don't want to take this risk and tarnish my name.'

ABOUT THIS CASE

Mr Yuen Chow Hin, an IT company vice-president, and his wife, Madam Wong Wai Fan, a housewife, sold their two-bedroom Riverside Piazza apartment for $688,000 in 2007.

They let it go at this sum as their ERA Realty Network agent Jeremy Ang said that this was the best price they could get.

Unknown to them, the buyer of the unit turned out to be Madam Natassha Sadiq, the wife of Mr Ang's boss, Mr Mike Parikh. She quickly resold it for $945,000.

The Yuens sued ERA for the 'secret profit' made in the second deal.

Last Thursday, a High Court judge found that the conduct of Mr Ang and Mr Parikh amounted to breach of duty and fraud, and ordered ERA to return $257,000 to the couple.

He also had a stern reminder for the industry of its ethical responsibilities.

'If I'm interested in buying a client's property, I will always ask his permission. I tell him I'm the one buying it and I will match the price that he is asking for. Often, clients are happy to get the price they ask for and they don't care who buys it. You have to be upfront about it, declare yourself and explain the prices involved.'- MS IVY LEE, chief executive officer of Ivy Lee Realty

'Last year, the market was very hot so there were a lot of speculators, and a lot of agents earned money from flipping. Such cases do happen, but I will not do this. I feel that there will be a conflict of interests. If I were the seller, I would trust the agent to sell the property at the best price. There is no way to safeguard against people who may cheat clients when they flip property.'- MR MUHAMAD SALLEH, property agent from HSR Property Group